Contractor & Subcontractor Liens

It may not always be necessary to initiate Mechanics Lien or other litigation to resolve payment issues. However, contractors and subcontractors who fail to take the necessary steps to perfect a Mechanics Lien when trouble starts may jeopardize their chance for recovery should a lawsuit turn out to be necessary. The statutory requirements to establish an enforceable Lien are technical and complex and vary depending on one’s status as a contractor or subcontractor and whether the project involves private or public property. Some of the steps to perfect a Mechanics Lien on private property include:

Serving necessary parties with a Notice of Lien within the time limits established by statute; and

Recording the Claim for Lien within the time allowed containing all of the information required by statute.

Failure to comply with these notice requirements can result in the loss of lien rights.

A mechanics lien is a statutory remedy that had no basis in the common law. As such, the requirements to perfect and enforce a lien are strictly construed by the courts. If a lien claimant does not meet all of the statutory directives, the lien will not be enforceable.

The rules discussed below pertain only to private projects. Real property owned by the government or governmental units such as cities, counties, and park, fire and school districts, to name a few, may not be liened. Instead, the Act permits claimants to file its lien against the public funds earmarked to pay, but not yet paid to the contractor, for the project in question.

B.CATEGORIES OF LIEN CLAIMANTS

For purposes of these rules, lien claimants fit into one of two categories: original contractors or subcontractors. The rules applicable to each are different.

1.ORIGINAL CONTRACTORS.

An original contractor is one who has a contract directly with the owner of the property or the owner’s agent. The agent can be, for example, a property manager, spouse or employee.

The requirements for an original contractor’s lien are:

A contract with the owner or the owner’s agent;

Performance of lienable work as defined in Section 1 of the Act;

Fulfillment of contractual requirements;

An amount due for the work;

Recording the lien within 4 months of completing the work; and

Filing suit within 2 years of completing the work.

If the contractor files suit within 4 months of completing the work, the lien need not be recorded.

If the contractor fails to record the lien within 4 months, but does so and files suit within 2 years of completing the work, the lien will be valid against the owner but not against third parties such as mortgage lenders or purchasers. In that case, the lender’s mortgage lien takes priority over the mechanics lien and in practical terms the lien would most often be ineffective.

a.RECORDING LIEN VS ENFORECEMENT

The foregoing must be satisfied to enforce a mechanics lien. However, one can record a mechanics lien in good faith prior to completing the work required by the contract and, thus, prior to there being an amount due.

2.SUBCONTRACTORS

A subcontractor is one who is hired by the owner’s contractor (or a subcontractor of the contractor) to perform work on a construction project. “Work” means providing labor and/or furnishing materials. There can be more than one original contractor on a project and the same work performed by the same company can be done as an original contractor on one project and as a subcontractor on another.

Requirements for an enforceable subcontractor’s mechanics lien are:

A valid contract between the owner and the original contractor;

A contract with the owner’s original contractor;

Performance of lienable work as defined in Section 21 of the Act;

There being an amount due for the work;

Serving (by certified mail or personal delivery ) the owner or agent in charge of the project within 90 days ¬ of completion of the work with notice of its claim;

Recording the lien within 4 months of completing the work; and

Filing suit within 2 years of completing the work.

a.OWNER OCCUPIED SINGLE FAMILY DWELLINGS

In addition to the 90 day notice, a subcontractor must within 60 days of first furnishing labor or materials notify the owner (by personal delivery or certified mail), that it is furnishing labor and/ or materials. If notice is not given within the 60 day period, the lien is preserved but only to the extent the owner has not been prejudiced by prior payments to the contractor. In other words, generally, if the owner still owes the contractor money when served with your lien notice, the lien may be valid up to the amount due or to become due the contractor.

The 60 day notice must contain the “Notice To Owner” language contained in your notices

Service of a 60 day notice does not excuse serving the 90 day notice. However, they can be combined.

b.CONTENTS OF 90 DAY NOTICE

The notice must contain the following:

Name of owner;

Name of the contractor;

Name and address of the claimant;

Notice of the contract, what was done or a description of the claim;

The property subject to the claim; and

The amount due.

c.EXCEPTIONS TO 90 DAY NOTICE REQUIREMENT

1. If the original contractor provides the owner with a sworn statement which furnishes notice of the name of the subcontractor and amount due for the subcontractor’s work, the subcontractor need not serve the 90 day notice. However, if the sworn statement is incorrect as to the amount, the subcontractor will be protected only for as much as is set forth in the sworn statement. If the subcontractor’s name is omitted entirely from the statement, or no statement is given, failure to comply with the 90 day notice will be fatal to its lien rights.

2. A subcontractor need not serve the 90 day notice if the owner is a non-resident of, or neither the owner or its agents for service can be found in, the county in which the property is located. In this case however, a notice of the subcontractor’s claim must be filed in the recorder’s office.

d.RECORDING THE LIEN CLAIM

A subcontractor should record its lien within 4 months of completing its work to affect the rights of third parties such as lenders, purchasers or other creditors. Although the Act permits recording the lien up to 2 years after completion, the lien in such case would only be enforceable against the owner.

C.PROBLEM AREAS

1. Contractor/Customer Name. Must be correct and specify if a corporation, partnership, or proprietorship etc.

2. Work. Must accurately describe work performed and/or type of materials supplied.

4.Timeliness of Notices. A subcontractor’s failure to serve notice within 90 days of last furnishing materials or labor is fatal to the lien. Failure of either an original contractor or subcontractor to record its lien within 4 months of completing labor and/or delivering materials makes the lien unenforceable against third parties such as lenders, tax authorities, creditors with perfected judgment liens.